Zynga's Series A return may be one of the biggest for a venture backed IPO since Google. By selling their early Series A shares Foundry Group (Boulder, Colorado) and Union Square Ventures (New York City) already generated cash on cash returns of 114X, well over an 11,000% total return, on their Series A investments in Zynga.
Of the original Series A investors it appears that only LinkedIn founder Reid Hoffman didn't participate in the secondary sale/repurchase. If Zynga’s IPO prices as expected, at or above $20 billion, Mr. Hoffman will realize 5X the return of other Series A investors as a result of not selling earlier. That’s roughly 577X Mr. Hoffman’s 2007 investment in the company.
But don't feel bad for Foundry or Union Square, both should make another 260 times their money along with San Diego based Avalon Ventures on Zynga's Series A-1, plus another 77 times the cash both invested in the Zynga's Series B round, led by Institutional Venture Partners (Sand Hill Road, Menlo Park, California) and Kleiner Perkins Caufield & Byers (KPCB, (Sand Hill Road, Menlo Park, California).
The chart below illustrates how these astonishing returns compare to other venture backed benchmarks based on their respective issue prices, not their IPO first day closing prices which are often substantially higher for VC backed tech companies. The comparisons in the chart are Google's IPO original issue price of $85 per share divided by their Series A price, LinkedIn’s IPO offer price of $45 per share divided by their A price, Yahoo!’s IPO as priced at $13 per share and the Microsoft’s $20 per share original issue price divided by the deemed price for the single round of preferred stock they issued to the sole VC on the deal.
Naturally the Zynga return multiple results have to assume an issue price, since the company is not public yet. Here it’s based on the $20 Billion number being quoted by many. But even if it were half that value, these are still amazing cash on cash returns generated during the worst financial crisis in recent history.
**All Zynga IPO estimates are preliminary, based on imported data from SEC filings, brought into Liquid Scenarios and is subject to errors. Chart Source: LiquidScenarios.com
Lorenzo Carver, MS, MBA, CVA, CPA is the Founder and CEO of Liquid Scenarios and author the John Wiley and Son's book "Venture Capital Valuation."
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Since founding bpCentral, our focus has been on increasing each user's competitive advantage each and every time they interact with one of our applications. Naturally, this involves more than simply enabling complex calculations to be performed accurately. In fact, during the first 12 months of developing our new technologies and applications, we put an inordinate amount of resources into discovering how to transform the relationships between idiosyncratic decision-makers and financial information. Our premise was that if that human to data relationship could be elevated to a new standard, then the relationships of those professionals with the entities and individuals they interact with could be more efficient and therefore more valuable.
In response, we developed CIMPA, the Carver Import Algorithm, a system that allows any electronic financial information, data or reports to be interpreted by a receiving system without the need for XML, XBRL, tagging approaches or extensive manual data entry. As a result of this technology, the Company's systems for private equity and venture capital professionals are able to import data in a matter of seconds, instead of a matter of hours.
Similarly, the Company noted that when users attempted to calculate the outcomes of complex liquidation preferences, anti-dilution provisions and other complex terms that are common to VC/PE transactions, any output was virtually impossible to verify without a costly audit of the formulas. Since the formulas were generally based in excel, this meant that few if any partners or other key investment professionals could afford to expend the effort to verify how amounts were arrived at. Upon further consideration, the Company realized that, to a certain extent, this was true of all financial reports. For traditional financial statements, this point is evidenced in the fact that notes to financial statements typically occupy several times more pages than the actual financial reports do. This realization inspired the Company to develop a system it calls OferX, which presents all financial information in a manner that allows any user to audit and see how amounts were calculated (in an easy to understand, quantifiable manner) without the need for extensive textual descriptions.
Together these unique tools form the foundation for the Company's offerings, which are backed by over 29 patent pending technologies.
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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users. Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist. The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel. Zynga is headquartered at the Chip Factory in San Francisco. For more information, please visit www.zynga.com.
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